What is Crowdfunding?
In the simplest terms, crowdfunding is a new way of raising funds whether for business or philanthropic purposes. In the early days, the only sources of funds were bank loans, angel investors, venture capitalists, loans from family and friends or donations. Today, crowdfunding offers an interesting and novel alternative.
Crowdfunding means exactly what it sounds like. The funds basically originate from a crowd of individuals. The "investors" are not necessarily rich or high-net-worth individuals. They could be ordinary guys like you and me.
The person wishing to raise funds, must conceptualise and communicate a pitch on the crowdfunding platform to attract the interest of would be investors/funders. This needs to be a convincing pitch as there are hundreds of projects competing for the attention of donors.
Often the project and the pitch is communicated by way of a marketing campaign run on a social network like Facebook or Twitter, or a YouTube video. If it goes viral and becomes really popular, the lucky campaign creator may even succeed in attracting a celebrity to support their project or cause, which will really help reel in the big-time donors!
Which leads to the next question – why would a group of individuals want to fund your idea or project or business? What's in it for them?
Why do donors fund a crowdfunding project?
The answer, strangely enough, is often nothing other than sheer altruism and the desire to do something good for their fellow man. Some donors and supporters may be driven by a need to contribute to good cause, but being of limited means, cannot consider contributing a large sum. The concept of crowdfunding allows them to fulfill their social contribution goals while still being able to meet their own financial needs.
Also, donors and supporters feel a sense of shared destiny with the project, product or cause being funded – they see themselves as having helped shape it and having been a part of the creation process.
This concept is quite mature in the developed world. And while it is not so familiar to the Asian mindset, it is certainly catching on amongst today's young entrepreneurs and philanthropists, even in Malaysia.